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U.S. District Court Judge halts new overtime rule from going into effect, at least for the time being. The new overtime rule states workers making less than $921 per week are eligible for overtime pay, irrespective of their job duties and responsibilities. An estimated 4.2 million workers currently ineligible for overtime, would automatically become eligible for overtime pay under the new overtime rule, without change to their duties.

U.S. District Court Judge Amos L. Mazzant found the new overtime rule in direct conflict with Congress’s intent. Judge Mazzant reasoned the plain meaning of the Fair Labor Standards Act (“FLSA”) statute, as well as Supreme Court precedent, affirms that Congress intended the executive, administrative, and professional exemption to depend on worker’s duties, rather than their salary.

Background

In 1938, Congress passed the FLSA. The FLSA requires workers to receive at least minimum wage for all hours worked. Workers are also entitled to overtime pay of one and one-half times their regular rate of pay for all hours worked over 40 in a week. When passed the FLSA contained certain exemptions to the overtime requirement. Because Congress did not define the term “executive, administrative, or professional capacity,” they delegated the power to define to the Secretary of Labor.

Before the new overtime rule, a worker was required to meet the following criteria to qualify for the executive, administrative, or professional exemption. First, a worker must be paid at least the minimum salary level established by the regulations. This is called the “salary test.” The old minimum salary level was $455 per week or $23,660 per year. Second, a worker must perform executive, administrative, or professional duties. This is called the “duties test.” Emphasis has always been on the duties test.

President Obama’s Directive

The Secretary of Labor is a cabinet position under the executive branch of government. President Obama, in response to the high cost of living and modernization of the economy directed the Secretary of Labor to streamline the existing overtime regulations for executive, administrative, and professional employees. In response the Department of Labor published a new overtime rule increasing the minimum salary level to $921 per week or $47,892 per year. The new salary level is based upon the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country, which is currently in the South. The new overtime rule also establishes an automatic updating mechanism that adjusts the minimum salary level every three (3) years. The first automatic increase is set to occur on January 1, 2020.

Preliminary Injunction

In October 2016, several State plaintiffs moved for emergency preliminary injunctive relief. Over 50 private business organizations have also joined the fight to challenge the new overtime rule. A plaintiff seeking a preliminary injunction must establish the following elements: (1) substantial likelihood of success on the merits; (2) substantial threat that plaintiff will suffer irreparable harm if the injunction is not granted; (3) threatened injury outweighs any damage that the injunction might cause the defendant; and (4) injunction will not dissolve the public interest.

A preliminary injunction is an extraordinary remedy. It is only granted if the plaintiff has clearly carried the burden of persuasion on all four (4) elements. It is not required to prove the case in full at the preliminary injunction stage of the case. The decision whether to grant a preliminary injunction relies with the sound discretion of the U.S. District Court Judge.

No Authority To Use Salary Test

Judge Mazzant held the FLSA does not grant the Department of Labor the authority to use a salary test, concluding that Congress intended the exemption to depend on a worker’s duties, rather than a worker’s salary. The court found after reading the plain meaning of the FLSA statute, it was clear that Congress intended the exemption to apply to workers doing actual executive, administrative, or professional duties. In other words, Congress defined the exemption with regard to duties, which does not include a minimum salary level.

This is interesting, especially in terms of the professional exemption, where employers love to argue workers, who are highly compensated, are exempt from overtime pay because of their salary. I had a case where an employee made over $85,000 a year, yet her duties were not executive, administrative, or professional. The employer argued because the employee was highly compensated, she must be exempt under the statute. Judge Mazzant’s ruling seems put into question the DOL regulation on “highly compensated” employees.

Ruling Applies Nationwide

Judge Mazzant held that the injunction applies nationwide. Absent contrary intent from Congress, federal courts have the power to issue injunctions in cases where they have jurisdiction. It is established that the stop of injunctive relief is dictated by the extend of the violation established, not by the geographical extent of the plaintiffs case. In other words, just because this is a judge in Texas making the ruling, it applies all across the United States.

We have seen this kind of nationwide injunction before. In August 2016, another U.S. District Judge in Texas issued a nationwide injunction to ban enforcement of a Department of Education rule related to transgender bathroom policies.

Moving Forward

Moving forward you can expect the Department of Labor to defend their position. Remember, at the preliminary injunction stage a Plaintiff is not required to prove their case in full. A preliminary injunction is basically the Court saying, let’s pump the brakes and see how the case plays out. There is a still a possibility the Plaintiff’s fail to prove their case. Also, the case could be overturned on appeal or Congress could amend the law.

The Plaintiffs chose to file this case in the Eastern District of Texas (Dallas, TX). This is a very conservative district. Considering we now have a Republican controlled Congress, unfortunately the chances the new DOL overtime regulations going into effect anytime soon is slim.